How To Read Mortgage Rate Sheets
Mortgage Insider » How To » How To Read Mortgage Rate Sheets
Mortgage rate sheets are a godsend when it comes to keeping loan officers honest. The mortgage rate sheets tell the tale when you are quoted an inflated rate.
You can catch this artificial upping of the rate (Yield Spread Premium or Service Release Premium) and eliminate it by knowing how to read the mortgage rate sheets. You’ll need to ask to see the mortgage rate sheets on the day of lock. Ethical brokers will always share the rate sheets with clients. Unethical banks and brokers will find some excuse not to.
To beat these guys at their own game, you simply must learn how they price a loan using mortgage rate sheets. Reading this article is a good start, however, the complete guide to eliminate Yield Spread and Service Release Premium overcharging is outlined in our shopping system, The Mortgage Advantage.
Understanding how to price a loan by reading mortgage rate sheets is really quite easy though it may seem intimidating at first. It will all become clear as you read this so take the 10 minutes and understand this practice. Doing so will save you $1,000’s over your lifetime owning and financing houses!
Here we go!
All lenders furnish rate sheets on a daily basis. When reviewing the mortgage rate sheets, we also determine which rate will NOT create a rebate from the lender known as a Yield Spread Premium. We believe upping your rate to make additional revenue over the 1% origination fee is deceptive, dishonest, and a bad business practice…believe me, other companies DO NOT hold that opinion.
Let’s use the rate sheet data below to demonstrate how we determine the rate that we quote ethically to our borrowers. We will also show you using the corresponding HSH Survey data how other Brokers and Banks are making enormous undisclosed profits in the form of Yield Spread Premium.
Mortgage Rate Sheets data was collected from a real Wholesale Lender on 03/10/2006.
30 Year Fixed Rate
15 Day 30 Day 45 Day
5.750% 1.350 1.475 1.600
5.875% 0.611 0.736 0.861
6.000% 0.039 0.164 1.826
6.125% (0.392) (0.267) (0.142)
6.250% (0.773) (0.648) (0.523)
6.375% (1.180) (1.055) (0.930)
6.500% (1.623) (1.498) (1.373)
6.625% (2.029) (1.904) (1.773)
6.750% (2.280) (2.155) (2.030)
HSH ASSOCIATES National Ave. SURVEY CONVENTIONAL
30 Yr
6.51%
In our example, we will quote our borrower a 30 year rate that carries a lock period of 30 days. If we are seeking to earn only a 1.0% origination fee and NO yield spread premium (back end fee), we will quote the rate of 6.000%. According to the mortgage rate sheets, 6.000% actually costs .164% Discount payable to the Lender not us at Integrity First. On this mortgage rate sheet, 6.000% is as close to par pricing as we can get. As you can see the next higher rate, 6.125% creates .267% of Yield Spread Premium and that’s not good.
So with this example, look at the costs for a loan at 6.00% with us.
Rate: 6.000%, $200,000 Loan x 1.0% Broker Origination Fee + 0.164 Discount = $200,000 x 1.164% = $2,328.00
Now we will show how everyone else does it!
First realize that banks and brokers don’t usually quote you the rate you’ll close with. They “bait” with low-ball rates and artificially lowered closing costs to get you to apply with them. Then on closing day, the rates and costs “switch” to those higher than expected. You’ve got the moving van idling in parking lot, so you sign.
The old bait-n-switch on the rate is a common practice. The loan officer will get very creative on explaining all the reasons why this had to happen, but suffice it to say, this was the plan from the beginning.
So with this mortgage rate sheet data, let’s look at what they made.
Rate: 6.500%, $200,000 Loan x 1.0% Broker Origination Fee +1.498 YSP = $200,000 x 2.498% = $4,996.00
The banks and brokers simply cannot forgo the Yield Spread Premium overcharging because at the very least it DOUBLES their income!
Now with this tutorial and our daily rate updates you can protect yourself from the most egregious consumer rip-off in history.
Of course, locating a local, ethical broker who will share his mortgage rate sheets with you is your best protection…check out The Mortgage Advantage to learn step-by-step how to interview and hire the right provider.
Good Luck!
Author: The Mortgage Insider
Date: December 1, 2007
Tags by Post Mortgage Lenders, Mortgage Rate Sheets, Rate Sheets, Real Mortgage Rates
Technorati Mortgage Lenders, Mortgage Rate Sheets, Rate Sheets, Real Mortgage Rates
Our Free Quote Service
Get 4 quotes (and only 4) from the nations best mortgage providers using our free, secure, quote service.
Unlike other online services, ours has a built-in "security measure" via an independent verification service that contacts you by phone to insure it was, in fact, you wanting the quotes. (So you must include a phone number for verification) Once confirmed, your request is passed on to the providers who will send you their offers by email (so you must include a valid email too!).
You then pick the best offer!
All Posts In Category
How To Read Mortgage Rate Sheets
Reader Comments
How To Use Our Comment Section:
1. To comment on the article or post: Simply cursor down to the bottom and add your comment in the box, hit "Save". After moderation, your comment will appear next chronologically.
2. To comment on a comment (not on the post) or what is called a "nested" comment: Hit the "Reply" link at the bottom of the comment you'd like to reply to. A new comment box appears, you can add your comment to the box, hit save. After moderation, your comment will appear "nested" under the selected comment.
3. Do Not Use ALL CAPS. Use "Real" Names, No Keywords. Do Not Put Contact Info (ie. phone numbers, email addresses, etc.) In Comment Text.
Thanks for the informative article on how the YSP is calculated, very helpful. In looking at some example rate sheets, I have noticed that there are some other values that seem to play into this calculation called “adjusters”. For example, for someone with >= 740 FICO but > 85% LTV there is a adjustment of (0.250). Can you explain how these adjusters work and how they affect the YSP and/or the interest rate?
Matt,
These are called “add ons”…and you can read about them here…
Add On Defined
Todd,
The rate Terri quotes, is the first rate on a rate sheet where no YSP is offered. A small discount is often required, which means there are lower rates where a larger discount would be required. So it’s not the “best possible” rate…but as you say, it is the best possible choice for those who don’t want to use a lot of cash to buy the rate down further.
You can read my answer to a similar question, “Are the rates on your Real Rates Daily podcast what a bank quotes?”
Hope that helps…
Each day Teri quotes the days rate. Hows does just that one quote and corresponding YSP percentage correlate with the many varying rates on a Mortage Rate Sheet? Is it the one best possible choice out of all???
Matt,
You got it.
Think of the unethical broker simply going up, up and up in rate until he gets the YSP/Rate combo he thinks you’ll take.
Needless to say, your interests (get the lowest rate) “conflict” with his interests (get the most commission in YSP).
From a purely “rate sheet” point of view, discount points are when the rate is dropped and the markets needs “upfront money” to secure you a lower than “par” rate. YSP is when the rate is increased above “par” so the market pays back a “premium” for getting such an above market rate.
Opposite ends of the same spectrum.
You got it!
RKB
This article makes everything chrystal clear now. I now understand “discount” and where the YSP comes from. An ethical broker will look at the chart and find the lowest rate for the lowest discount. An unethical broker will set the rate where they will make the most YSP they can get away with. Am I correct in assuming the term “discount” and YSP are interchangable? or does YSP describe something which falls under the umbrella of “discount”?
Thanks
Matt Lynn